By Ginny Brady
The Advanced Notice of Proposed Rulemaking circulated by NCUA early this year sought to gather opinions from interested parties regarding the present structure of corporate credit unions. Specifically, NCUA was looking for ideas to help redesign the corporate system with an emphasis on transparency, fairness, safety, accountability and service to natural person credit unions. Toward the end of the document NCUA solicited views on corporate governance. They observed that, "The sophistication and far-reaching impact of corporate activities requires a governing board with appropriate knowledge and expertise." NCUA followed this observation by positing a series of questions regarding changes in board recruitment and training that might be required to encourage a high level of board excellence. One area of exploration that resulted in numerous responses was, "Comment is also sought on whether corporate directors should be compensated..." Of course this statement and other ANPR questions were designed to address the corporate credit union structure and practice, but as Gary Irvin of FORUM Credit Union observed, if we are considering compensating corporate board members then compensation for all credit unions board members should be examined. Is it time to pay natural person credit union board members?
Traditionally, credit unions in the United States have had volunteer boards, supervisory and credit committees. The Federal Credit Union Act states in provision 1761a paragraph 112 that, "Only one board officer may be compensated as an officer of the board and the bylaws shall specify such position as well as the specific duties of each of the board officers." Alphonse Desjardins, in describing the foundations of the Caisse Populaire (Cooperative People's Bank) in 1914, stipulated that, "The services of officers of the cooperative people's bank save those of the manager are gratuitous." The practice of volunteer board members has changed in Canada. A May 2005 presentation by Linda Archer, VP/human resources and marketing for Credit Union Central in Canada, gave an overview of compensation paid to directors according to asset size in British Columbia, Alberta, Saskatchewan and Manitoba. One of my favorite Canadian credit unions (and the largest in Canada), Vancity, includes board remuneration as part of its board governance policy. A resolution brought before the membership of the $14 billion credit union in April 2009 proposed board honorariums of from over $56,000 per year for the board chair to over $25,000 per year for board members without committee chair assignments. Although Canadian and American credit unions share the same founding principles, Canadian credit unions are regulated as for-profit financial institutions.
Tradition and practice seem to differ as they relate to board remuneration. Those who argue for paying boards an honorarium for service state that the time devoted to credit union responsibilities warrants pay. They say attracting qualified board members who are willing to devote themselves to responsible oversight requires monetary compensation. A sample of the responses to NCUA’s Advanced Notice of Proposed Rulemaking indicates that many U.S. credit union volunteers and professionals disagree. Out of the 22 responses I read, approximately half expressed views on board compensation and 9 supported continuing the volunteer board system. Those who were in favor of financial compensation for boards reasoned that it would improve the quality of boards. Among respondents who opposed the idea, Roshara Holub of the Missouri Credit Union Association stated, “Paying board members would not guarantee quality and could pose the risk of self-interest and corruption." Some of those making comments, like David Savoie of Louisiana Corporate Credit Union, cited credit union tradition observing that, "Voluntary Service has long been a part of the credit union difference."
My view on board compensation leans toward the traditional. The recent past has shown that paying boards of directors does not necessarily improve corporate oversight. Boards of Fannie Mae, Freddie Mac and AIG have been accused of a lack of due diligence in spite of compensation. Examples from the for-profit world whose boards have shown lapses in competence is not my only reason for favoring a volunteer board system. I agree with those who have observed that the credit union difference has some key identifiers. A board that serves the membership without the expectation of traditional remuneration seems to me to be at the heart of any nonprofit system. As a nonprofit, credit unions place members' financial wellbeing at the center of their mission. Directors exemplify this primary principle by not accepting additional reimbursement for the products, services or investments made by credit unions for members.
Credit unions are bound to change in structure and practice during the years to come. This process of updating and revitalization is necessary for the health of the entire credit union system. Please share your thoughts on whether you think boards should retain their volunteer status or if members should be allowed to consider financial compensation for their boards.
Ginny Brady has been a credit union member for over 15 years and serves as a member of the Ufirst Federal Credit Union Board of Directors. She has held the position of board president and is currently the vice president of the board. Ginny was awarded the 2008 Volunteer of the Year Award by the Credit Union Association of New York. She has also completed the CUNA Volunteer Leadership Program and received the Blue Diamond Certificate. She has developed a board of directors blog, The Boardcast.
